Mergers. Partner buyouts. Retirement. All of these can trigger the same silent problem: a business owner holding on to a life insurance policy that no longer serves their goals.
These are typically corporate-owned plans, such as key person life insurance exit strategies or buy-sell agreement policies, that once played a crucial role in business continuity. But now, they’re just sitting in a filing cabinet, still demanding premium payments and quietly draining value.
It’s easy to overlook these policies after an ownership transition or restructuring. But with the proper evaluation, many of them can be converted into meaningful cash through a life settlement for business owners.
COMMON SCENARIOS WHERE POLICIES BECOME UNNECESSARY
It’s not uncommon for financial advisors to come across outdated business-owned life insurance policies when reviewing a client’s portfolio, especially after a liquidity event or ownership change.
Here are a few of the most common situations where these policies no longer align with the client’s needs:
- Buy-sell agreements that were dissolved after a business sale or partner buyout.
- Key person insurance that remains in force even after the executive retires or passes away.
- Corporate-owned policies tied to a business that has merged, restructured or no longer exists.
- Split-dollar arrangements where the original business or shareholder no longer requires the coverage.
These policies don’t automatically expire. Unless someone intervenes, thebusiness (or its successor entity) may continue paying the premiums indefinitely, with no future benefit.
THE FINANCIAL DOWNSIDES OF DOING NOTHING
Letting an outdated life insurance policy sit untouched is more than just a missed opportunity; it can actively drain a company’s resources:
- The premiums continue to accrue, even when the original reason for the policy no longer applies.
- Surrendering the policy or letting it lapse may yield little or no value in return.
- Policies with large face values often have the potential for significantly more return through a life settlement.
- Unused coverage creates balance-sheet inefficiency, tying up capital that could be reinvested or distributed more effectively.
In many cases, business owners are unaware that these policies still hold value or that a secondary market exists for them.
INTRODUCING LIFE SETTLEMENTS AS AN EXIT STRATEGY
A life settlement allows a business to sell an unnecessary life insurance policy for a cash payment, which is usually significantly more than the surrender value but less than the death benefit. The buyer assumes the premiums and becomes the new beneficiary.
For corporate-owned or trust-held policies, the process looks like this:
- 1. A licensed broker appraises the policy.
- 2. The buyer submits an offer to purchase the policy.
- 3. If accepted, the seller receives an immediate cash payment.
- 4. The buyer continues to pay premiums and gets the death benefit upon the insured’s passing.
Most clients receive four to seven times what they would have received if they had surrendered the policy. In some cases, the seller can also retain a portion of the death benefit. This is a strategy known as a retained death benefit arrangement.
For business owners winding down a company, dissolving an existing agreement or preparing for retirement, a life settlement can offer both liquidity and peace of mind.
WHEN A LIFE SETTLEMENT MAKES SENSE FOR BUSINESS OWNERS
Financial advisors are uniquely positioned to spot underutilized insurance assets during business transitions. Here are a few real-world scenarios where a life settlement can offer measurable value:
- Post-sale cleanup: A client sells their business but still owns key person policies taken out years ago.
- Retiring partners: A buy-sell agreement funded with life insurance remains active, even though the business has dissolved.
- Trust-held policies: A family trust owns a large policy with no remaining business purpose but needs cash for distribution.
- Policy conversion deadline: A convertible term policy is approaching its deadline, and the business no longer needs the coverage.
Example: A business owner held a $1 million convertible term policy originally taken out as key person insurance. After retiring, he no longer needed the policy and couldn’t justify the premium. Instead of surrendering it for zero, he sold it for $200,000 through a life settlement and used the funds to supplement his retirement.
STEPS FOR FINANCIAL ADVISORS TO EVALUATE AND EXECUTE
Helping a client evaluate a corporate life insurance policy for its settlement potential isn’t difficult, but it does require a structured approach. Here’s how to guide the process:
- 1. Identify candidate policies: Review all corporate-owned, trust-held or business-related life insurance policies.
- 2. Confirm ownership and insurable interest: Ensure a clean title and legal right to sell the policy.
- 3. Request a policy appraisal: Assess the policy’s face value, cash surrender value, premium schedule and term status.
- 4. Consult a licensed life settlement broker: A broker will source multiple offers from potential buyers.
- 5. Review the tax implications and reporting: Work closely with the client’s CPA to understand the cost basis and potential capital gains.
- 6. Document fiduciary rationale: Maintain transparency and due diligence to satisfy compliance requirements.
Life Settlement Advisors works directly with financial advisors and their clients, absorbing all upfront costs and doing all the work related to the valuation, marketing and the sale of a policy.
THE FIDUCIARY AND STRATEGIC BENEFITS
When clients are transferring ownership, restructuring assets or finalizing a succession plan, advising them to sell a corporate life insurance policy is a strategic move that:
- Demonstrates responsible asset management by eliminating unnecessary liabilities.
- Reinforces your role as a holistic financial advisor, especially during major transitions like retirement, estate planning or business exits.
- Provides immediate liquidity for investment, philanthropy or personal goals. Shows the client that you’re thinking beyond typical strategies to uncover hidden value they didn’t know existed.
- Financial advisors who bring this approach to the table are often seen as forward- thinking partners, not just service providers.
TURN DORMANT POLICIES INTO ACTIVE ASSETS
Whether initially intended to provide liquidity during business succession or life insurance for a key person in the company, a life insurance policy that you no longer need won’t go away on its own. And doing nothing is one of the costliest decisions you can make as a business owner.
With proper review and a strategic approach, what appears to be a financial liability can become a powerful asset. Whether the goal is to reduce liabilities, create liquidity or streamline a business exit, selling unneeded business life insurance could be the most overlooked financial win in your client’s portfolio.
Need advice on how to sell unneeded business life insurance? Contact Life Settlement Advisors today. Let us help you sell a corporate life insurance policy that no longer serves a purpose and turn it into a strategic win for your clients.
